Cotton Market Weekly

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The information contained herein is provided by Plains Cotton Cooperative Association (PCCA), a farmer-owned cotton marketing cooperative headquartered in Lubbock, Texas. It is for general informational purposes only and is obtained from sources believed to be reliable; however its accuracy and completeness is not guaranteed by PCCA, and PCCA offers no representations or warranties of any kind in providing this information. Nothing contained herein is intended, or should be construed, as advice or guidance for the marketing of cotton.

December 1, 2016

Although intraday movements were often extreme, March cotton futures have spent the past week trading in a range from 70.40 to 72.30, providing traders with some relief from the volatility of the previous few weeks. The volume of trading was still relatively high, and the number of open contracts in the futures market increased almost 4,000 contracts to 256,545. Cotton fundamentals and outside influences seemed to be taking turns pushing the market this way and that.

Among the cotton specific information that we received this week, USDA released the final crop progress report for 2016. Nationwide, the cotton harvest was estimated at 77 percent complete as of Nov. 27 which is 7 percentage points behind the five-year average pace. However, only four states were behind their averages. California, North Carolina, and Kansas were three of the lagging states, but most of the difference is found in Texas where harvesting was reported at 62 percent versus a five-year average of 76 percent. Thankfully, this week was clear for many producers, but the forecast for snow and rain may still catch the less fortunate.

International production also is looking promising, but supply disruptions in both India and China have not yet been sorted out. China is still dealing with a slow pace of classing and with the challenges of insufficient logistical infrastructure from the now dominant western growing region. Similarly, the pace of seed cotton arrivals at India’s gins has not yet recovered to the levels seen before the “demonetization” policy began. While these blockages will clear out eventually, the temporary shortages have helped markets move higher.

Demand for cotton has been quite good, and not just from mills. While this week’s export sales report showed healthy sales of 202,300 upland bales, mills bought far less cotton than speculators did last week. According to the CFTC, speculators bought approximately 1.85 million bales worth of futures contracts in the week ended Nov. 21. Additionally, OPEC’s first production cut in eight years also encouraged more speculative buying. Large fluctuations in currency and bond markets also have forced many traders to re-allocate large quantities of funds from one market to another. So far, this has been good for cotton, but it is difficult to say whether it will continue.

Traders will spend the next week worrying about how December’s WASDE report will look. The report seems unlikely to have many surprises, but estimates that fall out of line with traders’ expectations can really shake the market. The estimates will be released Dec. 9 at 11:00 a.m. central time, and cotton market fundamentals may take a back seat to macroeconomic factors as cotton industry traders avoid staking too large of a position ahead of the report.

The week ahead:

Export Sales for this week will be released 7:30 a.m. CST on Dec. 8.

World Agricultural Supply and Demand Estimates (WASDE) will be released at 11:00 a.m. CST on Dec. 9.

Friday, Nov. 25

Nearby futures contracts opened the session under pressure, and March fell to a five-session low of 70.40 cents per pound. Support at the bottom, however, halted the losses and March climbed to a high of 71.48 cents but was unable to surpass the key resistance level of 71.50. The contract settled at 71.25, down 39 points.

Monday, Nov. 28

After five consecutive settlements lower, March cotton settled higher in a relatively quiet session at the Intercontinental Exchange (ICE). The contract moved lower in early trading before buyers returned, enabling it to settle 77 points higher at 72.02 cents. One analyst suspected speculators were persistent buyers.

Tuesday, Nov. 29

Almost all ag commodities, including cotton, traded lower. In fact, cotton futures were under pressure the entire session. March fell to a low of 70.87 cents and settled at 71.30, down 72 points.

Wednesday, Nov. 30

The pressure continued, and March fell to a low of 70.60 cents early in the session. Buyers then returned and moved the contract off its low. March settled at 71.58, up 28 points and in the top half of its 110-point range. March cotton actually ended November with a 221-point gain for the month.

Thursday, Dec. 1

March traded on both sides of unchanged most of the session on light volume and in a narrow range. Selling pressure and volume then increased, and the contract settled at 70.90 cents, down 68 points. It was the first time March settled below 71.00 cents since Nov. 15.

Producers sold 38,665 bales on The Seam in the week ended Dec. 1. Daily average prices ranged from 68 to 70 cents per pound. Currently, more than 60,000 bales of 2016 Texas/Oklahoma/Kansas cotton are offered on The Seam, and with the rapid progression of harvest, more cotton is being offered each day.